County Bulletin

RE: Computing True Value of Furniture, Fixtures and Equipment
of Hotel, Retail. and Other Establishments.

For many years it has been common practice for persons
engaged in hotel, retail and certain other businesses to
maintain their records on an exhaustion method. 'This
exhaustion method entails the write off of the cost and
accumulated reserves for depreciation of furniture, fixtures
and equipment at the time such sets become fully depreciated.
Of course, such a write-off does not necessarily coincide
with the actual disposal of the assets and for this reason
records so maintained do not lend themselves to a true value
computation (302 method) as used by this Department for many
years. The accuracy of the 302 method depends upon the
availability of costs of all furniture and fixtures
physically on hand and in use or held for use.

Experience indicates that some portion of the assets so
written off as being fully depreciated are still on hand and
in use or held for use. Recognizing that there is no absolute
way short of a physical appraisal or an inventory to evaluate
such fully depreciated assets still on hand and in use or
held for use, this Department has adopted and is using
presently, the method outlined in the sample computation
affixed hereto.

In summary the method proposed provides that all fully
depreciated write-offs be added back at cost by year of
acquisition for all years including, a ten year period
preceding the year in which the twenty per cent (20%) utility
value is reached on the regular 302 method. It is assumed,
with respect to such add backs, that an amount equal to ten
per cent (100%) of the cost thereof win disappear each year
commencing with the year preceding the oldest year of
acquisition appearing on the regular 302 computation until a
value of zero is reached.

It is to be noted and emphasized that this revised method is
only to be used, and will only be followed, in instances
where book records are maintained on an exhaustion system or
where book records do not include all furniture, fixtures and
equipment items still on hand and in use or held for use.

This revised method for determining the true value of items
of furniture, fixtures and equipment, which have been written
off the book records, but which are still on hand and in use
or held for use, does not, under any circumstances, penalize
a person recording disposals of assets. On the other hand, it
does uniformly value assets which are still on hand but
written off of the taxpayers books of records by reason of
becoming fully depreciated.

EXHAUSTION METHOD (Bull. 124)

The exhaustion concept assumes that items of property which
have aged to the "floor" of the 10% annual allowance are
disposed of, thereafter, at a uniform rate of 10% per year.

Since a 10-year "life" is indicated by both the 10% annual
allowance and the Class III percentages, the assumed
disposal rate is continued in1980 and subsequent returns.

Comparison:

10% Annual
Allowance
Class III Percentages

Acq Year

Disposals

Effective Pct.

Disposals

Effective Pct.

1958

-100%

0

1959

- 90%

2

1960

- 80%

4

-100%

0

1961

- 70%

6

- 90%

1.9

1962

- 60%

8

- 80%

3.8

1963

- 50%

10

- 70%

5.6

1964

- 40%

12

- 60%

7.5

1965

- 30%

14

- 50%

9.4

1966

- 20%

16

- 40%

11.3

1967

- 10%

18

- 30%

13.2

1968

20

- 20%

15.0

1969

22.5

- 10%

16.9

1970

25

18.8

1971

27.5

24.6

1972

30

30.5

1973

35

36.3

1974

45

42.2

1975

55

51.5

1976

65

62.0

1977

75

72.4

1978

85

82.8

1979

95

93.2

Note: *Computation of assumed disposals under the
cost-index method is not affected by the change to
composite group-lives. The cost-index method relates only
to costs and disposalS-not valuation percentages.